MtGox takes heat as reasons for Bitcoin FAIL surface

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The high-profile MtGox bitcoin exchange remains partially disabled as the company works to address a security flaw which critics say should have been fixed months ago.

The company on Monday continued the suspension it placed on Bitcoin transactions from its users to third-party accounts. Currency withdrawals and incoming payments to MtGox users are still being facilitated.

According to MtGox, the suspension is being put in place while the company seeks to address an issue which allows for fraudulent transactions to take place. MtGox said that it had spotted suspicious transactions on its network and that it has "confirmed the presence of transactions which need to be examined more closely."

The vulnerability appears to lie in the way MtGox manages the hashes assigned to its Bitcoin transactions. By altering information in a transaction hash, a fraudster could redirect and complete a transaction in the blockchain before it can be processed by MtGox. The result is a recorded incomplete transaction which then can be reported and performed a second time by the institution, allowing the attacker to collect funds twice.

To remedy the situation, MtGox (named for its original launch as a "Magic the Gathering" card exchange) said that it was working to implement a new hashing system which will allow for transactions to be better tracked and cataloged in the future.

The company said that the issue is not unique to MtGox and can affect bitcoin or any other similar crypto-currency.

"To put things in perspective, it's important to remember that Bitcoin is a very new technology and still very much in its early stages,"MtGox said.

"What MtGox and the Bitcoin community have experienced in the past year has been an incredible and exciting challenge, and there is still much to do to further improve."

To some other members of the Bitcoin world, however, MtGox's claims are a hollow excuse for not solving a serious issue which has been known about for years. According to the Bitcoin Foundation, the "transaction malleability" issue encountered by MtGox has been known about since 2011, and is something which all Bitcoin wallet developers and exchanges should account for.

"The issues that Mt. Gox has been experiencing are due to an unfortunate interaction between Mt. Gox's implementation of their highly customized wallet software, their customer support procedures, and their unpreparedness for transaction malleability, a technical detail that allows changes to the way transactions are identified," the Bitcoin Foundation said.

Meanwhile, MtGox has seen Bitcoin value on its exchange drop significantly as unrest amongst customers is growing. ®